insurance29 June 2016 – 

I was sitting in my doctor’s waiting room the other day (annual check-up time) with the morning blah, blah, blah TV show on in the background when they started a commercial plug for funeral insurance. Besides the awful, cheesy, rehearsed questions asked by the presenter and then answered, in an even more awful, cheesy dialogue, it struck me how pointless this form of insurance is.

I reckon it’s one of those policies that provides insurance for the sake of having insurance. Think about it this way. A basic funeral, which is all you really need as you won’t be around to enjoy it, costs around AU$4,000 according to ASIC’s Moneysmart website. Funeral insurance costs around $10 per month for $5,000 of cover, although in many cases this increases as you get older. That means that if you take out a policy at age 35, and continue until you’re 75, you may have paid several times the value of the cover.

But it’s not so much the cost of the product that got my attention, but the way they were selling it. “Don’t burden your family when you pass away”, “You can be remembered for all the right reasons when the day comes”, “We’ll be there to help cover the cost of your funeral with a quick pay-out to your family”, yardy, yardy, yaaaaaa….

All emotional stuff which got me to thinking, how much insurance have we got based on emotional want, and how much insurance do we really need?

Insurance cover for house and contents, car and boat, health, funeral, your life, income protection, travel, pet, alien abduction, the list is huge. But besides potential abduction by extra-terrestrials the rest of the policies are quite common amongst today’s average households.

Now don’t get me wrong. I’m not anti-insurance. I have some insurance and have previously made claims on my policies for which I have been very pleased to have at the time. Where I’m going with all this is that too often, insurance is seen as necessary or purchased out of fear. In fact, non-critical insurance is just as bad as poor investment choices.

The thing to remember is that insurance companies are making a lot of money off you.

One way insurance companies make their profit by charging more in premiums than they expect to pay out. The other way the companies ensure their profits is to deny claims. They do that mainly by having complex rules that they constantly change.

So let’s look at the more common insurance policies out there and discuss how necessary they really are.


Car – If your car is worth less than a few thousand dollars, do you really need full, comprehensive insurance or would third party/liability cover be sufficient? Now, being the owner of a newer vehicle, I do have a fully comprehensive policy, however, I did a lot of shopping around first, and believe me, premiums vary hugely between companies depending on where you live and how you use your vehicle.

I ditched the company I had my previous car with for a better deal, and then dumped that one two months later for an even better offer. In all, between the first company and the one I’m with now, I saved $450 a year.

I do however, believe that all vehicles on the road should be insured in one way or another. That is the responsible thing to do. No one should be financially disadvantaged if you crash into them and have no insurance. That should be a crime.


House – Take a look at the statistics. What are the chances of your home suffering a catastrophic disaster? Fire or flood are most common, but what is the risk of it happening to your place? Can you get a better deal because you live in a low risk area?

As always, shop around and don’t be afraid to change. Now, in most cases, if you have a mortgage, insurance is a condition of the loan, however, do you really need an excess of only a few hundred dollars or could you request a much larger excess in return for a significant premium reduction?


Household affects – As with house insurance, ask yourself, what are the chances of losing everything in one catastrophic event? If you have $60,000 worth of ‘stuff’, do you really need to insure every last piece of it in case the whole lot gets destroyed? Probably not. So consider reducing the amount of cover you have to take care of a ‘significant loss’, and again, consider upping the excess to reduce the premium to the bare minimum.

Most people I know have never made a claim on their insurance, or very minimal, but have been paying large premiums for many years.


Health – There’s a bit of a pattern forming here. Ask yourself, “do I really need a policy that covers dental and optical or can I fund them myself, saving plenty each year?” If you feel that you really need health insurance, consider whether you should only cover significant or catastrophic (there’s that word again) illness rather than all of the extras insurance companies encourage you to include.

Of course, there’s one big exception to all this: If someone else is paying. If you’re getting optical or dental insurance as part of your employee benefits, it may well be a good deal. It’s still a silly way to pay for getting your eyes examined or your teeth cleaned, but if your employer includes cover with your employment package, then you might as well take it.


Travel – Don’t leave home without it. How many times have you read about some intrepid traveller coming to grief in a foreign land and not having travel insurance? Whether it’s being run over by a moped in Vietnam, or flattened by a rogue elephant in Thailand, the cost of medical care can be astronomical.

I personally know of someone who was knocked off a motorbike in India, and left for dead on the side of the road. Her injuries were at the more serious end so once stable she was airlifted to a main hospital in Mumbai. After several weeks of care in Mumbai, she was then repatriated back to New Zealand. The cost of all this? Around NZ$30,000.

If you choose to travel without at least some form of medical cover, you’re taking a huge risk. One that could affect your financial future for many years. Donation websites, like Givealittle or GiveNow, are not an alternative to having a robust insurance policy after you’ve fallen off your motor scooter and can’t pay your medical bills.


Life – To be honest, I can think of only one reason to have life insurance. If you are the main income earner and you have a young family and a mortgage, then should something happen to you, you’re not leaving them financially in the poo. However, you don’t need millions of dollars to set them up for life. Consider how much you would need to pay off the mortgage as well as see them through for a couple of years or so. I’m sure that your other half is plenty capable of going back to work eventually, and life will carry on. Don’t get sucked in to over-insuring on this one.


Funeral – Here’s where it all started. Don’t get sucked in to the emotional sell. If it’s important to you to have your funeral paid for, consider a pre-paid option instead, or put aside some savings to cover your send-off.


In my opinion, the basic rule for all kinds of insurance is: Bear the risks you can afford, insure the ones you can’t.

Shop around and as with all regular expenses, review at least annually for a better deal. Then put all the savings from these premiums into growing your nest egg.

When you are financially independent you don’t need half of these. Since you have a healthy stash of savings built up it means you don’t need income protection insurance, you don’t need comprehensive health cover as you can fund your annual medical expenses, and you definitely don’t need life or funeral cover.

To demonstrate my point, here’s Mr Money Mustache with the final word….

The savings of thousands per year will add up alongside all your other newfound riches from frugality, and you’ll soon find that none of these potential expenses will scare you. Over the past 10 years, I’ve saved about $40,000 in insurance premiums compared to the average level of spending, and now that $40k is sitting alongside my other employees, producing $2800 of passive income each year, and already more than big enough to cover replacing a crashed car or paying any possible deductibles on medical bills.

And after 10 years of relatively exciting living, I haven’t even had to dip into it once. Now I see why insurance companies make so much money!

Have you got any great tips or experiences to share about getting better insurance deals or even better, avoiding unnecessary cover altogether? Then let’s hear them, down there in the comments.


Disclaimer: The opinions expressed in this article are just that, my opinions. You need to assess your own level of risk to determine what insurance cover is appropriate in your particular situation.


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Thanks for stopping by.

13 thoughts on “Insurance? Do I……….or don’t I?”

  1. I totally agree Martin. Very good tips in assessing whether we are over insured or not. If we don’t give thoughtful analysis to insurance, we could be wasting a lot of money. And they love to sell based on emotion!

    I hope you don’t mind the shameless plug, but I did a guest post on Distilled Dollar’s blog today on my analysis of life insurance based on my changing life circumstances. Spoiler alert…I don’t own any!

    1. I think that’s why a lot of people buy insurance, Green Swan. The best sales people are the ones that appeal to your emotions and plenty of people get sucked in.

      All good with the shameless plug. I added one to my comment on your guest post over at Distilled Dollar’s site, hehe. Could end up just the two of us going around in circles lol.

  2. We do carry a lot of insurance ourselves, but believe it’s necessary to protect our assets. We don’t have funeral insurance where it’s a waste of money, but we do carry life insurance where Mr. FE is currently the principal earner. I was shocked to see how low your funeral costs are in AU where here in the U.S. funerals average around $25,000. Great job reminding us to check and make sure that we are no over-insured!

  3. I just increased my life insurance, mostly due to our mortgage, we haven’t increased my wife’s yet but probably will in the near future. We are pretty young so a boatload of life insurance is pretty cheap right now

    For the rest 100% agree, when I looked into pet insurance it seemed like a rip off

    1. Life insurance to cover the mortgage so that your spouse doesn’t get landed with the debt should you die, is one of the few cases I think it’s good to have. However, when I hear of multi-million dollar pay-out policies, I just think they’re a waste of money. And as green Swan said in his article, do you really want to be worth more dead than alive? Thanks for your comment AE.

  4. Good coverage of insurance. Like you, I’m not necessarily anti-insurance; however, I do believe that most people buy too much and haven’t really thought about how it fits into their overall financial plan.

    A few years back I purchased some term-life with a very specific purpose … to pay off the mortgage so my wife doesn’t have to dip into our retirement savings if something should happen to me before we turn 60. I purchased a 15-year, $350,000 policy. Most of that, $250,000, goes to the wife and $50,000 each goes to my brother and mother respectively.

    My current plan calls for our mortgage to be paid off in 10 – 11 years; hence the reason for a 15 year policy, which extends beyond that time. If I should die before February 2029, the $250,000 is enough to pay off the mortgage today – and of course, the balance will only decrease going forward – ensuring that my wife will not have to touch any of the money in our retirement accounts to deal with the house.

    1. Hi James and thanks for stopping by. You’ve given us another example of what I’d call ‘wise insurance’. Enough to cover the mortgage should something happen to you but not overdoing it. Without a mortgage to worry about, most of us who follow the more frugal path don’t need lot of money to get on with life. I’m assuming that your wife is on board with the same lifestyle. Nice that you include a sum for your mother and brother as well. Thanks for your comment.

  5. One insurance that you didn’t mention is Total Permanent Disability, or TPD. Interested to hear your view on this one.

    1. Hi Steve, you’ve put me on the spot on this one. Personally, I’ve never had TPD insurance. I looked into it a few years ago and decided that it was too expensive and there were so many conditions it just seemed like hard work. So I guess I have just taken the risk of surviving without it.

      Like life insurance, I think it’s one of those ones where it should be considered on your own set of circumstances, of course. If you are the sole bread-winner and you have a young family, then I see a case for having it.

      If you are single, then maybe. If you become unable to work for a long period this would be financially devastating too.

      Now that I am financially independent, it would be of no great benefit to me and I’d be unlikely to get it since I don’t have a predicable income source.

      I guess not needing certain insurances is another benefit of becoming FI.

      What’s your thought on TPD insurance?

      1. My thoughts on TPD insurance: I see it as possibly requiring a higher payout than death insurance. If you think about the scenario where you become totally disabled (say a car accident leaves you a paraplegic or something): your earning capacity has just taken a nose dive, and not only do you have your dependents and mortgage to continue supporting, you also have your ongoing costs of rehabilitation and/or adaptation to your new disability. These costs could be much higher than in the event of your death.

        Of course, being financially independent as you are possibly means that your earning capacity may not be as affected – assuming your significant other could take over management of your investments in the event that you lost the capacity to do so.

        Personally I have TPD through my super, but have been considering increasing my insured amount because I do not think it is sufficient to cover a scenario like the above. Perhaps my risk tolerance is substantially lower than others though.

        1. Hi Steve and thanks for your comments. I diid consider TPD insurance a while back but came to the conclusion that, for the amount of long term cover required for a major, life changing incident, the premium was so expensive that I couldn’t justify it on a ‘what if’ basis.

          Now in saying that, if something did happen, I may lament the fact that I’m not covered but it’s a risk I’m prepared to take. I’d rather take the funds I would have given to the insurance company and add them to my own investments.

          I did have life and TPD insurance with my super but again, it was really expensive and didn’t actually offer a lot of cover. In fact, it offered more should I die, than if I was injured. Now which situation do you need the big bucks?

          Admittedly, being financially independent means that I don’t feel any need for life or TPD which is one of the additional luxuries of FI.

          And just in case, I have an Enduring Power of Attorney in place so that my empire will be managed should I end up completely stuffed.

  6. Lots of insurance talk in the PF blogging community lately. To be honest, I think that is a great thing, as most people could use some more awareness in this area.

    I really appreciate this quote: In my opinion, the basic rule for all kinds of insurance is: Bear the risks you can afford, insure the ones you can’t.

    It is that exact logic that has lead me to hold over 10x my annual income in term life insurance to protect my wife in the event of my untimely death. With that money, she could pay off our mortgage and conservatively invest the rest to replace most, if not all, of my income.

    I don’t worry as much about health insurance or car insurance, as I know my policies are good. However, I think it is wise to review them periodically.

    1. Hi there FSH and thanks for the kudos. Acyually, I picked up that quote along the way but can’t for the life of me remember where. Like all good quotes, I’ve been looking for somewhere to use it for ages.

      Good strategy with the life insurance. I’m guessing that Mrs FSH has a similar policy to protect you should something happen to you.

      And definately, all policies should be reviewed annually for value and to ensure that they still meet your requirements. How many people have been burnt having a ‘set and forget’ mentality with their policy and then finding themselves hopelessly under insured when they need to make a claim?

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